Dispelling myths, dispelling rumors and misinformation is an ongoing battle for financial advisors. Estate planning is a topic especially prone to myths, starting with the belief that it’s only for the rich. There are many myths about estate planning and what it is and what it isn’t. Here are the key ones.
Myth #1: I’m too young to need an estate plan
Well, statistically, that statement may be closer to true if you’re in your twenties or thirties, but only because the chance of you dying at that age is less than if you’re older. But the bigger problem is that a lot of people still believe this statement into their fifties. And therefore, a lot of those who intended to create an estate plan eventually ended up dying before they get a chance to do so. And the result is often a legal and emotional nightmare for their families.
Myth #2: Only rich people need an estate plan
Well, technically speaking an estate is defined as all the property owned by a particular person. In other words, if you have property or assets of any type, then you have an estate and you need an estate plan. Your estate essentially includes things like savings accounts and investments, as well as your home, boats, cars, collectibles, and even items of sentimental value.
Myth #3: An estate plan is just about assets and property
Well, that’s wrong. Why? Because estate planning is also very much about emotions, relationships, and deeply personal matters. In fact, in my experience, that’s really the greatest risk of not having an estate plan. It’s not the legal or financial chaos that often ensues, but the emotional fallout. I’ve personally seen families absolutely torn apart by arguments over who gets what or over what to do with a parent on life support. So, a comprehensive estate plan could have helped prevent these arguments.
Myth #4: As long as I have an estate plan and written will, then I’m all set
A will is a good start, but you’re still missing many important documents. And your simple will may or may not be legally binding. You need to be sure of that.
Myth #5: Estate planning is only concerned with what happens with my assets after I die
Again, wrong. Why? Estate planning is very much about helping you protect and grow your assets while you’re alive. The very definition of estate planning is the accumulation, preservation, and ultimate distribution of assets.
Myth #6: Estate planning is expensive, and I’ll need a lawyer right from the start
Well, I wouldn’t say to do it without a lawyer, totally. But the truth is if your family and financial situations are fairly simple, you can draft many documents yourself at little or no cost and there are resources available to help you online.
Myth #7: I don’t need a lawyer at all
Well, I would say that’s wrong. Sure, you can obtain and draft all these documents yourself, but there may be problems or complications with some of your directives that only a qualified estate planning attorney would recognize. To be safe, it’s smart to at least have an attorney review them and let you know if changes should be made or additional steps should be taken. Here’s the good news, many financial advisors who specialize in income planning have professional relationships with estate planning attorneys and essentially partnerships on behalf of their mutual clients. And that helps ensure that the back end of the estate plan, the part about preserving and ultimately distributing assets, aligns properly with your retirement income strategy in an overall sense. Because that is extremely important.
Myths #8 and #9: If I die without a will and my spouse or partner will automatically receive all my assets; If I die without a will, the state will get my money
Here are the facts. If you pass away without a will, the state you live in will apply its law, what we call laws of intestacy to determine who gets what, and in each state it’s different. Now jointly owned property, like your home, usually passes to the other living owner without going through the probate process. But other assets might be unavailable to your spouse or partner during probate, or they might end up being distributed to unintended beneficiaries, such as a spouse from a previous marriage or maybe financially irresponsible children.
Myth #10: Estate planning is only really important after I retire
Well, you probably guessed it, wrong again. Why? Because estate planning is not a process that you should be saving for the future. It’s a step you take to help you prepare for the future and to better ensure that your wishes are met and that your assets are well protected in the meantime.
We know that a good financial plan can be wrecked by a poor estate plan, but the two often cross-pollinate with each other because of taxes. And so where are the glaring holes and what should consumers be concerned about when it comes to taxes like in IRAs, at your wheelhouse, and estate planning?